Vodafone, banks help Britain's FTSE edge higher

* FTSE 100 up 0.1 percent, holds near fresh 2013 highs * Banks helped by LTRO early repayment news * Vodafone boosted again by joint venture sale chatter * Miners weak; Anglo American Q4 production report mixed By Jon Hopkins LONDON, Jan 25 (Reuters) - Gains in banking stocks and market heavyweight Vodafone helped push Britain's leading shares modestly higher on Friday, with the index consolidating around a fresh 4-1/2 year peak. The UK banking sector was up 0.25 percent, buoyed by news that lenders will repay the European Central Bank 137 billion euros in three-year loans from its Long Term Refinancing Operations (LTRO) next week. Banks have opted to hand back the money early in a sign that at least parts of the financial system are returning to health. Vodafone was again the single biggest contributor to the FTSE 100's gains. It rose 0.7 percent to extend Thursday's 3.2 percent jump and alone added 2.5 points to the index. Traders on Thursday cited talk that the mobile telecoms group may sell its stake in its U.S. wireless joint venture to its partner Verizon as the main reason behind the rally. The speculation had been triggered by comments from widely followed hedge fund manager David Einhorn, who said he had added to his Vodafone position, arguing that the market undervalues the "clearly quite valuable" stake in Verizon. At 1150 GMT, the FTSE 100 index was up 1.84 points, or 0.1 percent at 6,266.75. Earlier it hit a fresh 4-1/2 year high at 6,277.91 in tandem with European indices after Germany's IFO business climate indicator came in better than expected for January. "It may be too early to get carried away at this stage but if we keep seeing these improved figures as the quarter goes on, we could actually see the euro zone move out of recession later this year," Craig Erlam, Market Analyst at Alpari (UK), said. The globally focused FTSE 100 shrugged aside news that Britain's economy is coming closer to dipping back into its third recession in four years, after growth shrank more than expected in the last three months of 2012. "The UK economy is bouncing along the bottom in the weakest recovery in living memory," said Trevor Greetham, director of asset allocation at Fidelity Worldwide Investment. "The more time that passes the clearer it is that America's gradual and delayed approach to fiscal tightening is the right one." Airlines group IAG was a stong gainer, up 1.9 percent, and earlier hitting its highest level in 18 months. It was benefiting from a continued readacross from easyJet's results on Thursday and after JPMorgan upgraded the stock to "overweight", traders said. Broker comment boosted Russian gold miner Polymetal as well, pushing it up 1.8 percent to 1,110 pence as UBS upgraded its rating to "buy" from "neutral." "We think that now is the right moment to use weakness in the stock price as a potential merger with Polyus Gold may be a strong driver," UBS said in a note, raising its target price for the stock to 1,300 pence. Trading volume in both Polymetal and IAG shares were around 100 percent of their 90-day daily averages by midsession, with overall FTSE 100 volume less than a third of its daily average. However, miners in general were weaker, retreating after gains on Thursday following positive factory data from top metals consumer, China. The sectors's 1.0 percent decline knocked more than 6.5 points off the FTSE 100 index. Anglo American fell 1.0 percent as the firm reported quarterly production was badly dented by the strikes that battered South Africa's mining industry last year. (Editing by Susan Fenton)